This is the book to have in your pack while hiking or biking. It's the most detailed towpath guide available. It lists everything there is to see, as well as many close by significant landmarks with lots of historical background. It's also filled with maps and photographs. Although the photos are all black and white, most of them are historical and depict the prime of places that have since fallen into disuse.
Thomas Hahn has written several books on the canal but this is the most widely available. It's on sale at every NPS store and at Washington DC bookstores and outfitters. All the mileage markers on this web site is from this book.
This is the official Boy Scout guide to the C&O Canal. It's a towpath guide, notable for the many maps that are included and is probably the best for planning an overnight hike or bike trip. Most of the book alternates a page of towpath description and a full page map of the area being described. Some parts of the canal are accessible only by remote, poorly marked, single lane roads but this book will show you how to get there. At $4, this book is a real bargain.
This is the official NPS book. It is not a towpath guide so there's no mile by mile descriptions but it is excellent at explaining how the canal worked, its economic significance and how it affected the lives of those who used it. The engineering sections of this web site were shamelessly plagiarized from it. It contains many color photographs and drawings. Most people will want Hahn's Towpath Guide as their first book since it's an excellent "tour guide" to highlight the sights but this book works at a different level. It seeks to explain the canal from a much broader perspective.
Mike High's C&O Canal Companion is a hybrid of Hahn's and the NPS publication. Half of it is historical, the other half is a towpath guide. The towpath guide is not as detailed as Hahn's (nothing is!) and I've heard it suggested that this book makes a better biking guide and Hahn's is a better hiking guide.